Dollars and Jens
Tuesday, January 15, 2008
It is now looking as though the funds target is more likely to be 3.5% than 4.0% at the end of the month; there are reasons for the fed to be hesitant to get too happy with the rate cuts, but the producer price index report today was pretty benign, the consumer price index tomorrow may well follow suit, and the labor market right now looks like a bigger concern than inflation.
Incidentally, swap spreads have come down further, the term-loan auction went off below 4%, and the credit crunch looks generally to be abating somewhat — though it's hard to imagine that will go away as a concern in the next six months. At the moment, though — given current data — it makes me think you try a 50bp cut rather than 75 right away. I believe the Fed may have access to early versions of the January employment report when it has its meeting in two weeks, though; if something there looks dire, you might see any lingering hawkishness, even at that level, melt away a bit.